Jml-craft Pty Ltd v. China Ping an Insurance (Hong Kong) Co Ltd and Another

HCCT 27/2021

[2021] HKCFI 1468

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 27 OF 2021

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Before: Deputy High Court Judge Victor Dawes SC in Chambers

Date of Hearing: 4 May 2021

Date of Decision: 24 May 2021

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DECISION

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A. Introduction

1.This is the substantive hearing of an application for an interlocutory injunction by a sub-contractor (“P”) to restrain: (i) the surety (“D1”) from making any payment under a surety bond; and (ii) the main contractor (“D2”) from demanding or receiving payment from D1.  The matter first came before me for directions on 26 March 2021 where D1 undertook not to make payment to D2 pending the substantive hearing.

2.P’s latest position is that it will not seek any order against D1.  The only remaining issue between them is costs.

3.As between P and D2, P maintains that D2 should be restrained from making any further demand under the “Advance Payment Bond” and receiving any payment under it pending the disposal of this action.

B.  Background

4.P is a company incorporated in Australia and is part of the Craft Group of Companies.  It is a contractor engaged in, inter alia, the supply and installation of facade and glazing systems to construction projects.

5.On 25 February 2019, D2 (the Main Contractor) awarded to P a sub-contract for facade glazing and louvres (“Subcontract”) for a construction project at 183-185 Clarence Street in Sydney (“Site”). P’s scope of work consists of the design, supply and installation of a curtain wall facade system for both the new structure and for certain parts of the heritage buildings that stood on the Site. A substantial part of the subcontract sum was for the supply and installation of what is known as the “FT01 panels” to be used at the main curved facade panels for the Project.

6.In or about late 2019, P and D2 began discussions on an advanced payment by D2 to P in relation to part of the Subcontract.  D2 required P to provide an advance payment bond as security.

7.P’s case is that the parties entered into what is known as the “Advance Payment Agreement” in order to give security to D2 for its advance payment up until the FT01 panels were delivered to the Site.  Under this agreement, P was to provide an advanced payment bond (“Advance Payment Bond”) for AUD1.5 million to D2.  One of the key terms was said to be a provision for reduction in value of the Advance Payment Bond as the FT01 panels were delivered to the Site.  P’s liability for the advanced payment and the corresponding maximum guaranteed sum under the Advance Payment Bond would be extinguished after the satisfactory delivery of all the FT01 panels.  In return, D2 was to pay P AUD1.35 million as advanced payment for the procurement of the FT01 panels after receipt of the Advance Payment Bond. The Advance Payment Agreement is said to be evidenced by a number of emails between the parties from 19 March 2020 to 9 April 2020 (“Pre-Variation Correspondence”).

8.The Advance Payment Bond was signed by P and delivered to D2 on 11 May 2020.  It was payable by D1. The recital of the Advance Payment Bond provided for a “Maximum Guaranteed Sum” in the amount of HK$7.7million (i.e. AUD1.5 million).  Further, clause 2 of the Advance Payment Bond provides as follows:

“[D1] shall reduce the Maximum Guaranteed Sum progressively by a sum equivalent to any deduction made on the cumulative aggregate value of goods and materials supplied and/or work done by [P] in the course of the project, up to the value of the Maximum Guaranteed Sum, as evidence in a certified true copy of the Interim Payment Certificate that has been signed by [D2]’s Commercial Manager and Construction Director and that [P] has to submit to [D1]. The format of the Interim Payment Certificate shall be in the format attached in Schedule B, or such revised format which must be mutually agreed between [D1], [D2] and [P].”

9.It is common ground that the parties entered into a written variation agreement on around 11 May 2020 (“Variation Agreement”).  A number of provisions in the Sub-Contract were amended. It contained, inter alia, the following provisions:

“2.3: In Item 19(d) of Annexure Part A delete existing drafting and replace with "Additional security for unfixed plant and materials (Clause 5 and Subclause 37.3) - 100% of the value of the plant and materials (being $1,484,690) in the form of an ‘unconditional' and 'on demand' bond included in this Agreement in Australian Dollars from [D1] with a validity period that is no less than 12 months from the date of practical completion.

In Item 19(e) of Annexure Part A delete “[Not used]” and replace with “[P’s] security upon delivery to Site and satisfactory inspection by [D2] of all plant and materials at Site and written confirmation from [D2’s] Commercial Manager and Construction Director is reduced by (Subclause 5.4)” - 100%

2.7(iv): Additional security provided in Item 19(d) shall be subject to recourse by the Principal and [D2] at any time: …… to satisfy any claims that [D2] may have against [P].

2.8: In clause 5.4 replace the first paragraph with the following: Upon delivery of all plant and materials to site, free of defects, deficiencies, errors or omissions to the satisfaction of [D2] in accordance with the requirements set out in item 19(e) [D2’s] entitlement to security held pursuant to Item 19(d) and Item 38 shall be reduced by the percentage in Item 19(e). Upon the expiration of the period of time set out in Item 19(g) after the issue of the certificate of practical completion, and where there is separable portions the certificate of practical completion in respect of the last separable portion, [D2’s] entitlement to security and additional security shall be reduced by the percentage or amount in Item 19(f) and the reduction shall be released and returned within 30 days to [P].”

10.Significantly, the Advance Payment Bond was attached to the Variation Agreement.

11.On 26 May 2020, D2 provided AUD1.35 million to P as advance payment crediting P’s Payment Schedule No. 13 in the amount of AUD1,350,002.64.

12.It is P’s case that by 12 February 2021, all the FT01 panels were satisfactorily delivered to the Site.  This was evidenced by Payment Schedule No. 25 dated 12 February 2021 which was approved by D2. Further, it would appear from a document known as “Status Report FT01” dated 16 March 2021 prepared by Mark Gelok of P that P’s work was either completely or substantially completed. D2 took issue with the content of this report.

13.P therefore asserts that according to the Advance Payment Agreement and/or Clause 2 of the Advance Payment Bond, P’s liability for the advanced payment and the corresponding liability under the Advance Payment Bond should be extinguished and D2 could not make any demand under the Advance Payment Bond.

14.On 15 March 2021, D2 instructed its solicitors to attend the office of D1 and presented a written demand (dated 12 March 2021) for the Maximum Guaranteed Sum under the Advance Payment Bond.

15.P’s case is that the demand was made fraudulently and/or in bad faith.  It is said that D2 knew that it was not entitled to make the said demand under the Advance Payment Agreement and/or the Variation Agreement.

16.P also pleaded an implied term of the Variation Agreement that P’s liability for the advance payment and the corresponding Maximum Guaranteed Sum under the Advance Payment Bond would be reduced progressively by the value of FT01 panels satisfactorily delivered to the Site. P’s overall position is that the Variation Agreement should be construed to give effect to the Advance Payment Agreement, which catered for a progressive reduction mechanism.

17.In addition, P also pleaded an alternative case that D2 is estopped from denying the terms and conditions of the Advance Payment Agreement because: (i) they were the common assumption on the basis of which P and D2 entered into the Variation Agreement; and (ii) P would suffer detriment and it would be unjust for D2 to resile from such common assumption.

18.In short, D2’s position is as follows:

(1)  First, the demand under the Advance Payment Bond was predicated on P’s indebtedness under the Subcontract relating to various claims for delay amounting to at least AUD3,967,780 and P’s lack of solvency.

(2)  Second, the Advance Payment Bond was only extinguished when all the materials (not only the FT01 panels) were satisfactorily delivered, and that D2 issued a written confirmation to that effect. Since there were various defects in the materials delivered, no such confirmation was issued.

(3)  Third, D2 took issue with the suggestion that the work related to FT01 was complete.  It is said that the “L12 glass” is missing; there are leaks through the FT01 facade at Level 12; there are minor defects remaining outstanding; water testing of the FT01 facade is incomplete and the “L8 glass” distortion is unresolved.

(4)  Significantly, D2 claimed that P had not completed critical aspects of the Subcontract work by 15 March 2021.

C.   Relevant Principles

19.It is not in dispute that, in general, on-demand bonds are independent of underlying transactions.  Accordingly, courts in general will not restrain the enforcement of such bonds even though there may be disputes relating to the underlying transaction between the parties. There are however two relevant exceptions to this rule.

20.The first is the well-known fraud exception (“Fraud Exception”).  In order to restrain the enforcement of an on-demand bond in the interlocutory stage on the basis of the Fraud Exception, the court must be satisfied that it is seriously arguable that the only realistic inference on the facts is that there has been fraud by the beneficiary and that the bank (payor of the bond) was aware of the fraud: see for example Alternative Power Solution Ltd v Central Electricity Board [2015] 1 W.L.R. 697, at §59, cited with approval in West Kowloon Cultural District Authority v AIG  Insurance Hong Kong Ltd [2020] HKCA 778 . This is a high threshold.

21.In his written submissions, Mr. Cheuk (for P) submitted that P can rely on the Fraud Exception so long as he can show a seriously arguable case of fraud. He relies on MW High Tech Projects UK Ltd v Biffa Waste Services Ltd[2015] 1 C.L.C. 449, at §34. I would note that the Fraud Exception was not actually invoked in MW High Tech (see §33).Insofar as Mr. Cheuk is advocating for a lower threshold than the “only realistic inference of fraud” test, I disagree. Such a lower threshold is inconsistent with the decision of the Court of Appeal in West Kowloon Cultural District Authority.

22.The second exception arises when there is an express or implied agreement between the parties that the beneficiary will not enforce the bond in certain conditions (“Implied Agreement Exception”). For an applicant to succeed in obtaining an injunction on this ground, he must show that there is a “strong case” as to the existence of such an agreement. As Chow J said in Grande Cache Coal LP v Marubeni Corp HCA 2136/2015 (unreported, 23 September 2015) at §32:

“What seems to me to be clear is that whatever may be the correct categorisation of the legal or evidential threshold, having regard to the nature of a performance bond (or performance guarantee or demand guarantee), which has been said to be similar to a letter of credit or promissory note, it is not sufficient for a plaintiff seeking to restrain a beneficiary from obtaining payment thereunder to show merely that there is a serious question to be tried (in the sense of the question not being "frivolous" or "vexatious") on whether the terms of the underlying contract preclude the beneficiary from making a call and whether, on the facts, the beneficiary is so precluded. A higher threshold is required to be met - that threshold has variously been described as "it is positively established that the party was not entitled to draw down", or "a strong case" has been shown, or "the 'serious issued to be tried' threshold is in practice a more difficult one to overcome", or "it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract". All these different formulations seem to me to convey the same idea, and probably would not lead to any different result in practice.”

23.Chow J’s remarks are consistent with various English authorities referred to me: see for example Doosan Babcock Ltd v Commercializadora de Equipos y Materiales Mabe Limitada [2014] BLR 33, and Simon Carves Ltd v Ensus UK Ltd [2011] BLR 340.

24.Although the two exceptions are distinct at law, they are closely related with each other on the facts. This is because P’s pleaded case is founded on various implied terms and common understandings between P and D2. If the court finds that P fails to establish a “strong case” in respect of the implied terms and alleged common understandings, it is difficult to see how the court can say that D2 acted fraudulently, in the sense that D2 knew it had no right to enforce the Advance Payment Bond. Where there is ambiguity as to the contractual position between the parties, D2 could legitimately take a different view from P as to its legal rights. In that case, it could not be said that the only realistic inference is fraud. I therefore turn to deal with the Implied Agreement Exception first.

D.   Implied Agreement Exception

25.The starting point is that conditions restricting enforcement can arise out of express or implied terms: MW High Tech, at §34.

26.In interpreting the agreements entered into by the parties, I give due weight to the natural meaning of the words chosen by the parties, while bearing in mind the context and purpose of the parties’ commercial arrangements. In assessing whether any terms should be implied into the parties’ bargain, I am guided by the Court of Appeal’s judgment of Lo Yuk Sui v Fubon Bank (HK) Ltd [2019] HKCA 261, and the well-known authorities cited in at §§30 - 32 therein. The overriding principle is that terms should only be implied out of necessity.

27.Mr Cheuk relies on the Pre-Variation Correspondence to show that P and D2 had reached the Advance Payment Agreement. Pursuant to this Advance Payment Agreement, the parties agreed that the Advance Payment Bond value would be progressively reduced as FT01 panels were delivered to the Site. P’s position is that since the Advance Payment Bond was issued solely to secure P’s obligation to deliver FT01 panels, the extent of this security should be progressively reduced when P performs its delivery obligations in respect of FT01 panels.

28.Based on the Advance Payment Agreement, P’s case is that D2’s entitlement to the Advance Payment Bond is limited by two conditions:

(1)  First, the Advance Payment Bond can only be invoked as security for P’s delivery obligations in respect of FT01 panels. It could not be invoked to satisfy other claims D2 may have against P.

(2)  Second, the value of the Advance Payment Bond would be progressively reduced as FT01 panels were delivered to the Site.Since P has delivered all the FT01 panels by 12 February 2021, the Advance Payment Bond is extinguished.

29.I address each of these alleged conditions in turn.

D1.  The Purpose Limitation

30.Mr. Cheuk’s point is that, taking into account the purpose of the Advance Payment Bond, it can only be used as security for P’s delivery obligations relating to the FT01 panels. As such, D2 cannot, as it has done, rely on the Advance Payment Bond to satisfy other claims it may have against P, such as damages claims for delay.

31.Mr. Cheuk’s submission, however, is prima facie inconsistent with Clause 2.7(iv) of the Variation Agreement, which explicitly provides that the Advance Payment Bond can be used as security for any claims that D2 may have against P.

32.P and D2 may have negotiated the advanced payment arrangement around P’s obligation to deliver the FT01 panels. Nevertheless, it does not follow that the Advance Payment Bond can only be used as security for that narrow purpose. The parties are free to widen the effect of the security. For example, a customer may charge a piece of property to a bank to secure a new loan, but the parties may well specify that this security could be invoked for the customer’s other indebtedness to the bank. In my view, that is the effect of Clause 2.7(iv) of the Variation Agreement.

33.Mr. Cheuk is effectively asking the court to interpret the term “any claims” in Clause 2.7(iv) of the Variation Agreement to mean “any claims in respect of P’s delivery of the FT01 panels”. I am unable to agree with this approach as it is inconsistent with the plain wording of Clause 2.7(iv).

34.On the other hand, a wider reading of Clause 2.7(iv) of the Variation Agreement is consistent with other terms of the Subcontract. In particular, Clause 2.7(iv) of the Variation Agreement is materially similar to Clause 5.2 of the Subcontract, and the default mechanism is that security provided for one purpose under the Subcontract can be used to satisfy any claims that D2 may have against P. By inserting Clause 2.7(iv) into the Variation Agreement, the parties likely intended to follow the default position in the Subcontract.

35.Insofar as Mr. Cheuk is seeking to rely on the Pre-Variation Correspondence to restrictively interpret the Variation Agreement, that would be contrary to the parol evidence rule. I would therefore reject that approach.

36.I also consider it inappropriate to imply a term into the Variation Agreement so as to restrict the purpose of the Advance Payment Bond as security. But to do so it strictly unnecessary. At the present state of the evidence I am not satisfied that such an implication is necessary for business efficacy. The Variation Agreement is fully workable without it – it merely puts P in a less advantageous position commercially.

D2.  Satisfactory Delivery of the FT01 Panels

37.It was hotly contested between the parties as to whether the Advance Payment Bond has been extinguished/reduced because P had already satisfied the relevant delivery obligations.

38.Mr Cheuk’s position can be summarised as follows:

(1)  First, Clause 2 of the Advance Payment Bond provided for a progressive reduction mechanism. D2’s entitlement to the Advance Payment Bond would be reduced when P progressively satisfies its delivery obligations in respect of FT01 panels.

(2)  Second, all the FT01 panels were satisfactorily delivered by 12 February 2021. Any defects relating to the FT01 panels related to installation, and not delivery.  Accordingly, P had already completed its delivery obligations notwithstanding any alleged defects.

39.Mr Zimmern, appearing for D2, took a different position as to the effect of the Advance Payment Bond and the Variation Agreement:

(1)  First, there is no such thing as a progressive reduction mechanism. Clauses 2.3 and 2.8 of the Variation Agreement provided that there would be a one-off reduction of 100% of the Advance Payment Bond when all plant and materials were delivered to the Site.

(2)  “All plant and materials” in Clauses 2.3 and 2.8 did not only refer to FT01 panels. Instead, in order to trigger the reduction, P would have to satisfactorily deliver all materials related to the Project.

40.There were various defects relating to a host of materials, and there was therefore no satisfactory delivery. For that reason, D2 never issued any written confirmation certifying satisfactory delivery.

41.There are two main points of contention between the parties. The first relates to whether a progressive reduction mechanism exists in the first place. The second relates to whether the delivery of materials other than the FT01 panels has an impact on whether the Advance Payment Bond was reduced/extinguished.

42.The starting point of the analysis is to look at the relevant contractual terms. Prima facie there appears to be a conflict between Clause 2 of the Advance Payment Bond and Clauses 2.3/2.8 of the Variation Agreement. The former clearly provides for a progressive reduction mechanism; whereas the latter speaks of a 100% one-off reduction when all materials were delivered.

43.I see some attraction in P’s argument. There is some force in saying that the parties created (and therefore valued) the security in accordance with the FT01 panels, and therefore any reduction of the security should track the delivery of the FT01 panels, and not any other materials delivered.

44.At the interlocutory stage, I do not need to rest my decision on whether P or D2’s interpretation is correct. Irrespective of whether I rely on Clause 2 of the Advance Payment Bond or Clauses 2.3/2.8 of the Variation Agreement, it is clear that the Advance Payment Bond is not automatically reduced/extinguished when there is delivery. Instead, D2 must issue a written confirmation to certify that it is satisfied with delivery. Clause 2 of the Advance Payment Bond specifically requires this confirmation to be in the form of an Interim Payment Certificate annexed in Schedule B of the Advance Payment Bond.

45.D2’s Commercial Manager and Construction Director never issued any written confirmation certifying that D2 was satisfied with delivery for any materials. This is fatal to P’s case. Accordingly, I consider that D2’s entitlement to the Advance Payment Bond to be valid and subsisting.

46.Mr. Cheuk relies on various payment schedules as written confirmation that P had satisfied its delivery obligations. However, this is contrary to Clause 37.2A of the Subcontract, which expressly states that payment schedules are not evidence that work under the Subcontract had been completed.

47.P could have argued that D2 acted in breach of contract by failing to issue written confirmation even when there was satisfactory delivery, and that D2’s breach was the only reason why the Advance Payment Bond remained alive. That was what the applicant did in the case of Doosan Babcock.  In Doosan Babcock, the bond in question only remained valid because the respondent, MABE, had wrongfully refused to issue Taking-Over Certificates. This led Edwards-Stuart J to say at §38:

“In the light of the principle established or recognised by the House of Lords in the Alghussein case, I cannot see how it would be just to refuse interim relief in a case where the defendant can only make a call on the Advance Payment Bond by setting up a state of affairs which, on the material before the court, has a strong likelihood of being shown to be the direct result of his own deliberate breach of contract. For example, as in this case, where the continuing validity of the Advance Payment Bond is solely the result of the absence of the Taking-Over Certificates, which in turn is said to be the result of the MABE's wrongful refusal to issue them.”

48.On the evidence before me, there is no basis for me to find that D2 had acted in breach of contract by failing to issue any written confirmation of delivery. This is for two reasons:

(1)  First, the allegation of breach is not part of P’s pleaded case.  I put this to Mr. Cheuk during his oral submissions, and he fairly accepted that he did not plead such a breach.

(2)  Second, P never asked D2 to issue any written confirmation of satisfactory delivery, in the form of the Interim Payment Certificate or otherwise. It is difficult to find that there is a breach when P never even applied for written confirmation.

E.   Fraud Exception

49.I am satisfied that the Fraud Exception does not apply. As I indicated earlier, the Fraud Exception is closely intertwined with P’s case on the implied terms and common understandings. I have already found that P has failed to establish a strong case in respect of the Implied Agreement Exception.  Accordingly, D2 could legitimately consider that it could demand payment pursuant to the Advance Payment Bond. In that case, it is not seriously arguable that fraud is the only realistic inference.

F.   Estoppel

50.P’s case is that the Advance Payment Agreement reached between P and D2 formed a shared assumption which gives rise to an estoppel by convention. In my view the principle of estoppel by convention does not assist P.

51.An estoppel by convention only arises when the parties had a shared assumption: First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569. As a general point, it is questionable whether pre-contractual negotiations are to be given much weight in establishing an estoppel by convention. A fortiori, when parties are negotiating to reach a final agreement, the shape of the agreement would continue to evolve. It is therefore natural that a final written agreement departs from a previous common understanding. The court should be slow to rewrite a contract on the basis of an estoppel by convention.

52.More importantly, the Pre-Variation Correspondence were emails between P and D2’s staff instead of their legal advisers. The parties may not have chosen their words very precisely and it is dangerous to read too much into them.

53.On the facts, I am unable to accept that P has a strong case showing a common understanding that would assist its position. Even if I am to accept that there was an understanding to the effect that the Advance Payment Bond is reduced/extinguished following the delivery of FT01 panels, there is no way of getting around the requirement that D2 must issue a written confirmation certifying satisfactory delivery.

54.I would note that the requirement of a written confirmation was specifically mentioned by D2 in its email dated 19 March 2020, where D2 suggested that any Interim Payment Certificates certifying satisfactory delivery must be signed by both D2’s Commercial Manager and Construction Director. This shows that the written confirmation requirement was important to D2. There can be no basis to say that it should somehow be dispensed with.

G.   Adequacy of Damages

55.Although I have found that P has failed to satisfy the necessary legal thresholds for relying on the Fraud Exception and the Implied Agreement Exception, for completeness I turn to examine other points that were raised by the parties during the course of submissions. They pertain to whether damages are an adequate remedy for P, and where the balance of convenience lies.

56.Mr Cheuk referred me to various authorities which have found that the enforcement of a performance bond would detrimentally impact the reputation of a contractor. The case of Unistress Building Construction Ltd v Top Dollars Development Ltd [2018] 1 HKLRD 237 is particularly relevant.  In Unistress, the Advance Payment Bond in question was also used to secure a contractor’s obligation to satisfactorily carry out construction works.  At §49, Chow J accepted that the contractor’s reputation would be detrimentally affected if the Advance Payment Bond was enforced. Such losses would not be quantifiable, and damages would not be an adequate remedy.  I agree that the same reasoning applies to the present case.

57.Mr Hughes for D1 submits that Unistress can be distinguished because Chow J was concerned with a default bond in that case, a bond which was only enforceable upon the contractor’s breach. On the other hand, the Advance Payment Bond is an on-demand bond. I do not accept that this is a material distinction. The economic reality is that both on-demand bonds and default bonds are used to secure a contractor’s performance of its obligations. Any enforcement would practically be an indication of unsatisfactory performance. The enforcement of default bonds may be more serious, but that is a matter of degree.

58.As to the balance of convenience, Mr. Zimmern argued that any cross-undertaking of damages by P would be inadequate due to doubts as to P’s solvency. However, D2’s risk is limited. The Advance Payment Bond is to be paid by D1, and there is no evidence that it would be unable to pay. If anything, it is D1 who would have to bear the risk of P’s insolvency.

59.The only loss that D2 may suffer is in the form of interest, which is a comparatively small amount. Therefore, I would have found that the balance of convenience lay in favour of P.

60.However, since I have found that P’s substantive case in respect of D2’s entitlement to the Advance Payment Bond does not satisfy the requisite legal thresholds, I decline to grant the injunction sought.

H.   Disposal and Costs

61.In light of the above, I decline to grant the injunction against D2.

62.In the hearing, I asked Mr Cheuk whether it is possible for the court to grant an injunction restraining the receipt of payment, since receiving money is a passive act, and it is difficult to stop a transfer into one’s bank account.

63.Mr Cheuk has subsequently referred me to two authorities where the courts have made such an order: see Unistress at §31, 53; JBE Properties Pte Ltd v Gammon Pte [2010] SGCA 46. I note that in Gee on Commercial Injunctions, 7^th ed, at §15-017 and §15-025, the authors indicate that an injunction can be granted to restrain the receipt of payment.   However, this point was never raised or discussed in the cited cases nor in the textbooks.

64.Since I decided not to grant the injunction in favour of P, it is not necessary for me to decide on this point. I would only remark that this problem may be resolved by asking the beneficiary of a bond to issue standing instructions to its bank to decline payment.  This is however a point thatI have not raised with the parties.

65.It remains for me to deal with the issue of costs. Although P discontinued its application against D1, its position is that D1 should not recover all its costs. P submits that it offered to settle with D1 on 21 April 2021. The terms of the offer were that P would agree to discontinue the action against D1 if D1 agrees to maintain the undertaking that it would not make payment to D2 until the Summons is determined. D1 unreasonably refused to accept the offer and therefore should not be awarded costs after the date of the offer.

66.D1 argued that the terms of the offer were much more draconian than its existing undertaking to the court. Additionally, there would be a chance that it would be in breach of the Advance Payment Bond. It was therefore justified in refusing the offer.

67.I award costs in favour of D1. The starting point is that costs should be awarded to a respondent when an application is not pursued. In this case, the application against D1 was unnecessary because P could achieve its objective by only seeking an injunction against D2. Further, P’s offer is irrelevant because D1 eventually did better than the offer – P withdrew its application against D1 unconditionally.

68.As to D2, I see no reason why costs should not follow the event. In fact, in these types of claims, the interlocutory stage is often determinative of the final outcome.  Accordingly, I award costs in favour of D2.

69.I make a costs order nisi in favour of D1 and D2, with certificate for counsel. The costs order shall be made absolute 14 days after the date of the handing down of this Judgment.

Mr Calvin Cheuk, instructed by Holman Fenwick Willan, for the Plaintiff

Mr Sebastian Hughes, instructed by Munros, for the 1^st Defendant

Mr Richard Zimmern, instructed by King & Wood Mallesons, for the 2^nd Defendant